10/15/12
For the second day in a row, stocks gave back some big early gains creating some negative looking reversal days. Now the Dow and S&P 500 are testing their 50-day EMAs as we head into the heart of earnings season.
[TABLE="width: 88%, align: center"]
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[TD="width: 241"]
[TD="align: center"] Daily TSP Funds Return[TABLE="width: 154"]
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[TD="align: right"] G-Fund:[/TD]
[TD="align: right"] 0.0036%[/TD]
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[TD="align: right"] F-fund:[/TD]
[TD="align: right"] 0.08%[/TD]
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[TD="align: right"] C-fund:[/TD]
[TD="align: right"] -0.30%[/TD]
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[TD="align: right"] S-fund:[/TD]
[TD="align: right"] -0.69%[/TD]
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[TD="align: right"] I-fund:[/TD]
[TD="align: right"] -0.07%[/TD]
[/TR]
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[TABLE="width: 80%, align: center"]
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[TD="align: right"] [/TD]
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For more on last week's and the monthly returns, see the recent Weekly Wrap Up.
Earnings start coming in more steadily this week, and next week we get the bulk of the 3rd quarter figures. Historically, this week is a mixed bag and next week we tend to get a "sell the news" reaction.
The S&P 500 broke slightly below the intermediate to longer-term rising trendline, but found support at the 50-day EMA. The 50 EMA tends to hold up on its first test in a bull market, but should it give way here, the technical picture gets more dicey.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Here, sentimenTrader.com shows us what has happened after the S&P 500 hits the 50-day moving average for the first time in at least 3-months, after recently hitting a new 52-week high...
Chart provided courtesy of www.sentimentrader.com
The Nasdaq has not exactly bounced off of the bottom of its recent descending trading channel. It has fallen below the 50-day EMA and has now closed below the 50 EMA for 4 straight days. After being down for six straight days it is certainly due for a bounce, but when an index "should" bounce, and it doesn't, it is a big red flag. The next few days will be important for the Nasdaq.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow Transportation Index rallied almost 1% on Friday and has been in a consolidation for the last 6 trading days. It is bound to break one way or the other this week, similar to other consolidations this summer.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The current consolidation may resemble a bull flag, but unfortunately most of these consolidations broke in the opposite direction from whence they came. The exception was in the first half of June.
The small caps of the Russell 2000 are either at the bottom of a big bull flag, or starting a new downtrend. It looks like we could get a short-term bounce, but it is now below the 50-day EMA and if it doesn't move back above it rather quickly, we'll have to start looking at this as a bearish development.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The dollar's action seems to favor stocks as it battles overhead resistance and what looks like a bear flag or a "dead cat bounce" after its sharp drop from 84 to 79.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Last week's TSP Talk Sentiment Survey came in at 45% bulls, 45% bears, for a bulls to bears ratio of 1.00 to 1. That is a Buy Signal which means the system is back in a 100% S fund allocation for this week after just one week in the G-fund.
If I had to speculate I would say we could see a little bounce this week, but next week has some seasonality problems. With QE3 doing its thing, and the dollar looking like it wants to rollover, it says to me that we shouldn't get too bearish, but the charts should tell the story as we go. If stocks continue to fall despite the assistance, it could be the market preparing for the worst as the fiscal cliff deadline gets closer.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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